- The Washington Times - Thursday, June 4, 2009

NEW YORK | The problem with rising expectations is that it gets tougher to beat them.

Investors broke the stock market’s four-day rally Wednesday and sold off after U.S. data on the services industry and factory orders came in below forecasts. Factory orders actually rose in April, but the report was a disappointment to investors, who had anticipated a larger increase.

The Dow Jones Industrial Average fell nearly 66 points, or 0.8 percent, while the Standard & Poor’s 500 index fell 1.4 percent. The Nasdaq Composite Index, which has been outperforming the other indicators this year, fell just 0.6 percent.

Since the Dow sank to its 12-year low in early March, optimism about the economy’s stabilization has buoyed the index by more than 30 percent. Over those three months, topping investors’ expectations meant clearing a relatively low bar.

Alan Gayle, senior investment strategist at RidgeWorth Capital Management, said he began increasing his stock holdings in March on signs that economic data were becoming “less bad.”

But now, Mr. Gayle said, ” ‘Less bad’ is not good enough.”

Even Federal Reserve Chairman Ben S. Bernanke was no longer emphasizing signs of economic stabilization Wednesday, as he has done in recent months.

In testimony to Congress, Mr. Bernanke focused instead on the government’s growing debt load, saying that failing to ease the deficit could undermine efforts to revitalize the economy.

In the last hour of trading, however, some traders bought back into the stock market to take advantage of reduced prices, said Ryan Larson, senior equity trader at Voyageur Asset Management. It’s a tactic known as bargain hunting, or “buying the dips,” and the move signaled that many market participants still think the rally has legs.

“At some point, it’s hard to fight the trend, and the trend over the last couple of months has been up,” Mr. Larson said. “People don’t want to be left out.”

The Dow fell 65.63 to 8,675.24. The Standard & Poor’s 500 index fell 12.98 to 931.76. The Nasdaq fell 10.88 to 1,825.92.

The S&P; 500 and Nasdaq pulled back from their highest levels so far this year, reached Tuesday. Both are still up for the year, but the Dow has yet to break into positive territory for 2009. It got within 35 points, or 0.4 percent, of that break-even point Tuesday.

There were more than twice as many declining stocks as advancing stocks on the New York Stock Exchange on Wednesday, when volume amounted to 1.3 billion shares, down from 1.4 billion a day earlier.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.54 percent from 3.62 percent. Last week, the 10-year yield surged to a six-month high of 3.75 percent.

The dollar gained ground against the euro and the British pound, while gold prices sank.

In other trading, the Russell 2000 index of smaller companies fell 3.92, or 0.7 percent, to 522.71.

Investors in stocks and energy were displeased with the Commerce Department report showing a smaller-than-expected rise in factory orders. Though it was the second gain in the past three months, orders rose just 0.7 percent in April when analysts had called for a 0.9 percent increase.

Also, the Institute for Supply Management, a trade group of purchasing executives, said the services sector shrank in May at the slowest pace since October. The barometer was below economists’ estimates and marked the eighth straight monthly decline.

The rally’s staying power will face more tests this week as retailers report May sales results Thursday and as the Labor Department releases jobs data Friday. The monthly jobs report is one of the most closely watched indicators of the economy’s health.

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